Brexit's impact on the auto industry

author: FutureCar Staff    

David Bailey, a Senior Fellow at UK in a Changing Europe and a Professor of Business Economics at Birmingham Business School, examines the potential impact of new 'rules of origin' requirements for Battery Electric Vehicles (BEV) under the Brexit trade deal. He argues that imposing tariffs on UK-EU BEV trade would be counterproductive when both the UK and the EU are trying to encourage a switch to electric vehicles in order to reach net zero emissions.

There is growing concern in the UK and EU auto industry about the potential impact of 10% tariffs on BEVs traded between the two regions. These tariffs are set to come into effect next year, just as governments are pushing for a transition to electric vehicles.

Starting next year, new 'rules of origin' requirements will only exempt car makers from tariffs if at least 45% of a BEV's components and 60% of its battery come from the UK or EU. However, the high proportion of non-EU content in BEVs, including batteries from China, means that trade between the EU and UK could face tariffs, driving up prices for BEVs while internal combustion engine cars remain tariff-free.

While the UK has been advocating for a delay in tightening the rules of origin, the European Commission is not in favor of this. The Commission is concerned about the potential for more US- and China-made batteries to be used in domestically assembled BEVs, which could undermine the EU's efforts to build a domestic battery supply chain.

The looming rules of origin change has prompted warnings from automakers like Stellantis, Ford, and JLR. Stellantis has stated that its UK operations may not be able to meet the new rules and could be at a competitive disadvantage. Ford and JLR have called for a delay, considering the current timing to be unrealistic and counterproductive.

The Society of Motor Manufacturers and Traders (SMMT) has emphasized that the real deadline is now, as auto makers are already planning for production and export for next year. The SMMT fears that the industry is facing another cliff-edge situation over trade rules, similar to what was experienced during the negotiation of the trade deal.

It is clear that the EU's desire to prevent the offshoring of BEV supply chains may inadvertently harm the auto industry it aims to support. There are discussions between the UK and EU on the issue, but a resolution would require agreement from both sides. The clock is ticking, and a last-minute fix may not be sufficient.

While there is a perception that the European Commission is listening and may eventually shift its position, it is crucial for this to happen sooner rather than later. A deal needs to be reached to ensure that common sense prevails.

FutureCar Staff